Japan's Shrinking Population Puts It On The Ratings Downgrade Path To Banana Republic Status

The new Japanese government has done little to inspire confidence in Japan's fiscal situation.

If things continue along the current path, Japan could face even further rating downgrades according to Standard & Poor's.

Then again, what can the government really do anyways, except try to have more babies:

Bloomberg: The policies of Prime Minister Yukio Hatoyama's government "point to a slower pace of fiscal consolidation than we had previously expected," S&P said in a statement today. Japan's rating could be lowered from the current AA, the third highest, if economic data "remain weak" and measures to buttress growth "are not forthcoming," the company said.

Any cut to Japan's local-currency rating would be the first since 2002, according to data compiled by Bloomberg. Today's move highlights concerns that the shrinking population and contracting gross domestic product will erode the pool of savings that has kept yields on its benchmark 10-year notes more than 2 percentage points lower than U.S. Treasuries.